After what it says is “strong” recent data and an economy operating “roughly at capacity,” the Bank of Canada announced it has raised its interest rate to 1.25%.
“The global economy continues to strengthen, with growth expected to average 3.5% over the projection horizon,” said the bank in a release.
Consumption and residential investment have been stronger than anticipated, which is a reflection of strong employment growth, the release furthered.
In particular, it noted, “there are signs of increasing momentum in the US economy, which will be boosted further by recent tax changes.”
The bank said its outlook takes into account a small benefit to Canada’s economy from “stronger US demand.”
However, the bank said, “as uncertainty about the future of NAFTA is weighing increasingly on the outlook, the bank has incorporated into its projection additional negative judgement on business investment and trade.”
Slower growth expected this year
In its outlook for this year, the bank said the country’s “real GDP growth” is expected to slow to 2.2% and then a little further to 1.6% in 2019.
“Looking forward, consumption and residential investment are expected to contribute less to growth, given higher interest rates and new mortgage guidelines, while business investment and exports are expected to contribute more,” the bank said.
“Inflation is expected to remain close to 2% over the projection horizon.”